Two months ago (February 2020, p. 60), “Legal Files” focused on several traps that unwary sellers might fall into when selling collector cars. This month, we turn the tables and look at ways that a buyer can get into trouble.
Get what you’re paying for
Perhaps the most critical thing is to be sure that the car you are buying is actually what it is supposed to be.
Condition problems can always be corrected, but authenticity cannot be created — although some sellers try to do so, some better than others. Therein lies the problem.
This can be really serious stuff. Say your “near-perfect” 1973 Porsche 911 Carrera RS has a replacement engine that was restamped to appear original. That’s easily a 25% valuation discount — perhaps more. But say that car started its life as an ordinary 911 and was modified into a look-alike Carrera RS. Now you’re looking at a 50%–80% valuation discount.
The people who fake these cars are much better at doing it than you and I are at recognizing it. The only reliable way to be sure your car is real is to hire an expert to inspect the car.
I’ve been thinking about a Corvette lately, so I was checking them out at the Arizona auctions. I saw a beautifully restored 1967 435-hp car that seemed flawless.
My friend, an accomplished Corvette expert, said, “Let me show you something about this car.” He took a photo of the engine tag and asked me what I thought about it. It looked good to me and had all the right numbers. But my friend’s trained eyes saw that the etching on the metal was inappropriate and the numbers were off in their thickness. Clearly, this was a restamped block, in my friend’s opinion.
It seemed amazing that a reputable auction company would mislead bidders about this, so we checked the auction catalog. It did not have a single word about the authenticity of the engine, or even the car, for that matter. Coupled with the auction companies’ standard disclaimers that bidders are not to rely on anything in the auction catalogs, this became a clear — and likely legally enforceable — case of “buyer beware.” The car brought six figures.
Words matter
Another auction, and another car with issues. This one was a Porsche 356 with a “correct” 1,600-cc engine. I hope you caught this one quickly — that is vernacular for “replacement engine.” To the uninitiated, this would suggest that this was the correct motor for the car — that is, the original engine. Not so. “Correct” means only that it is the correct type of engine for that vintage and model.
Another word that can have multiple meanings is “restored.” Recently, a friend asked me if my 1963 Jaguar E-type roadster had been restored. I started to say it was, since that was what the seller told me, but I caught myself and replied, “Well, not really. It’s been repainted and the interior leather has all been redone. So I’d say it was partially restored.”
Nonetheless, I’ve had clients ask about their rights because they bought a “restored” car and later learned that the engine was worn out and had never been rebuilt. To them, describing the car as “restored” connotes that the drivetrain has been rebuilt. But to the courts, not so much.
The lesson to learn here is that words matter. The seller’s words must be interpreted very carefully — and not given greater meaning than intended.
In particular, pay attention when the chosen words are different than the typical words used in similar situations. And when you think you’ve read closely enough, take another look and see which words are missing. Many times, what is said about the car is far less important than what is not said — such as the auction Corvette that was not described as “numbers matching.”
Condition issues
Every auction in the United States uses bidder agreements that clearly state that all lots are sold as-is and that you cannot rely on anything printed in the auction catalog. Every dealer in the country uses a sales agreement that makes the sale as-is. Every online auction or sales site does the same.
Can you see what they are trying to tell you?
I’m not about to say that sellers can lie with impunity. But I will say that some may — and then hide behind an as-is provision.
Can you beat the misrepresenting seller in court? Maybe, although not certainly. But what is certain is that trying is going to cost you $30,000–$125,000 in legal fees — maybe even more — depending upon the state where the litigation is conducted and how the seller decides to defend the claim.
Worst of all, you are not likely to force the seller to reimburse your legal expenses.
There is simply no better alternative to having a professional inspect the car and report on its condition before you buy it. You can’t expect the expert to find every single thing wrong with the car, as that level of inspection would be too expensive. However, an expert can find most major defects with the car.
To get the best protection, be specific about what you are expecting and what you want the expert to check. Stay in contact with your expert during the process and ask as many questions as you can. Most important, make sure the expert is working for you and is not tied to the seller.
Money transfers
As a general rule, never pay the seller and then wait to get the car. Take, for example, a recent case where the seller directed the buyer to wire the funds to the seller’s broker, whereupon the funds disappeared. The seller never got the money — and refused to give up the car. Of course, the buyer will get the car at the end of the litigation, but that is adding 50% to the cost of the car.
If you go back to the February “Legal Files,” you will see that I advise sellers not to give up the car before they have the money. So am I talking out of both sides of my mouth? Maybe so, but both statements are good advice.
When the seller is as smart as you are, use an escrow arrangement. It doesn’t have to be anything fancy, and I’ve gladly allowed the seller’s attorney to be the escrow agent where the terms of the escrow are clear.
Even something as simple as “when the money comes, deliver the title to the buyer and the money to the seller” can do the trick.
Title issues
It’s a problem when the seller doesn’t have a clear title issued in his or her name. With anything less, good legal advice is necessary.
I once titled a Daytona whose last-issued title was issued in 1976 to a California resident. A signed it over to B, who gave a bill of sale to C, who gave a bill of sale to a dealer, who reassigned to D, who gave a bill of sale to E, who then gave a bill of sale to my client, F. We formed an Oregon LLC for the car and F gave it a bill of sale. Add it up — this Daytona jumped five titles — six if you want to count the dealer.
I had no trouble titling the car in Oregon, but only because Oregon is a no-sales-tax state. Most states that levy sales taxes will require that you produce a certificate of title issued to your seller. In the case of this Daytona, that would have required five intervening titles to be issued, amounting to around a 50% sales tax rate.
An “open” title is less troublesome. That is one where the owner signs off on the certificate of title but no buyer’s name is entered. Usually, you can fill in your name and title it as though you bought the car from that person.
But if a DMV clerk asks why the title was transferred 10 years ago and you are just now getting around to titling it, problems can arise. If they do, make sure you have a suitable arrangement with the seller that guarantees he will fix the problem.
Online sales
If you’ve been reading “Legal Files” for even a short time, you’ve read several times about how risky online sales can be. At the fraud extreme, you have sales where the crook just copied someone else’s ad and is “selling” a car he doesn’t own. At the opposite extreme, you have a car that looks perfect in the little online photos — but isn’t that way when it shows up in your garage.
The short answer is, never buy a car you have never seen yourself. Yes, I know, it’s difficult and expensive to fly across the country just to look at a car and then fly right back home. That adds a lot to the purchase price, and it’s just wasted money if you don’t buy the car. (Can you find any logic in that last statement?)
If seeing it yourself is impossible, then having a trusted and skilled acquaintance do it for you is the next best thing.
But don’t be surprised when someone else’s view of “excellent” is your view of “mediocre.” Still, the worst thing is to rely on photos, especially low-resolution digital images. Of course, you are free to roll the dice — just don’t complain when they come up snake eyes. ♦